Managing the Connected Organization

by Valdis E. Krebs

If knowledge is power, what is connected knowledge?

The knowledge economy operates on the complexities of connections. All individuals, communities, systems, and other business assets
are massively interconnected in an evolving economic ecosystem. In the
connected economy, each network actor (individual, team, or organization)
is embedded in a larger economic web that affects each participant
and, in return, is influenced by that participant. In such a connected
system we can no longer focus on the performance of individual actors -- we must manage connected assets.

Efforts at making sense of this new world are beginning to reveal
some basic principles at work in the complex adaptive systems we
call our organizations.

"There is a central difference between
the old and new economies: the old industrial economy
was driven by economies of scale; the new information
economy is driven by the economics of networks..."

Information Rulesby Carl Shapiro, Hal R. Varian

Recent research on productivity and effectiveness in the knowledge
economy provides insight into what works in the connected workplace.
Certain patterns of connections appear around both effective individuals
and successful teams when performing knowledge work. We have also discovered where to add 'missing links' that change a poor economic
network into a better conduit for information, influence, and knowledge.

Improving Individual Effectiveness

Is it who you know (social capital) or what you know (human capital)
that leads to success? This has been often debated with good arguments
on both sides. Most managers today side with the "what you know" crowd.

In the late 1980s management researchers were starting
to notice that some managers were better, than other managers, at accomplishing objectives
through relationships. John Kotter, of the Harvard business school, discovered
that effective general managers spend more than 80% of their time
interacting with others. Other management scholars were also starting
to see the importance of conversations and relationships in managerial
work. Individual mastery was no longer the key -- it was human capital
and social capital working together to create productivity and innovation.
Ron Burt, of the University of Chicago, a leading researcher on the social capital of managers
has found, through numerous studies, that certain patterns of connections
that individuals build with others brings them higher pay, earlier
promotions, greater influence, better ideas and overall greater career success.
Burt believes that good social capital provides a much higher return
on investment in human capital -- the two work together.

Arent Greve, a researcher at the Norwegian School of Economics,
is also interested in the contribution of human and social capital
on organizational outcomes and individual productivity. He studied
project managers in a knowledge-based services company in Europe.
He viewed human capital as the knowledge and skills attained by
the individual over his/her career. Social capital was defined as
a property of personal networks -- the ability to reach others,
inside and outside the organization, for information, advice and
problem-solving. He found something very interesting. As expected,
better human capital and better social capital both had a positive effect on productivity,
but unexpected was the effect of better social capital was noticeably stronger!
Project managers with better personal networks were more productive
-- they were better able to coordinate tasks and find the knowledge
necessary to accomplish the goals of their projects.

Improving Team Effectiveness

Meanwhile in a high-tech firm in Silicon Valley, Morten Hansen, also of Harvard, had a similar research agenda. The key difference was that
Hansen was interested in the productivity and effectiveness of teams.
Hansen found that teams who
could easily reach other teams and access the knowledge they needed
were more successful than teams with poor network connections. Both
Greve and Hansen found that the ability to reach a diverse set of
others in the network through very few links was the key to success.

Hansen took his research one step further. He examined the difference
between those teams that had many direct connections to other project
teams and those that used both direct and indirect ties to
reach the resources they needed. Hansen found that those teams that
used only direct ties to seek and find information were soon overwhelmed
with too many connections. The teams that used the power of the
indirect tie, while at the same time limiting their direct ties,
were more successful -- they did not spend as much time interacting
with the network to get what they needed. A sparse radial network
in which your direct ties are connected to others that you are not
connected to, has been shown, by Burt and others, to provide
many benefits and opportunities.

Hansen discovered one other insight that is key for knowledge management.
A diverse radial network with many unique indirect ties is good
for monitoring what is happening in the organization and for discovering
pockets of knowledge and expertise. Yet, this type of network may
not be useful for transferring knowledge. Although indirect ties
help you cast a wide net and see far into the organization (and
beyond it), these ties are not always efficient for transferring
and utilizing knowledge once it is discovered. It depends on what
type of knowledge needs to be transferred. Explicit knowledge, which
can be easily codified, can be transferred indirectly through various
technologies such as email, FTP, WWW or documents through interoffice
mail. For example, sharing a presentation done previously for the
same customer. Complex tacit knowledge knowledge requires direct
interaction and sharing of experiences between two or more individuals.
To transfer tacit knowledge a direct tie with the knowledge source(s)
must be established. Trust and understanding must be built -- this
is similar to apprenticeship. Explicit knowledge travels over computer
networks, but tacit knowledge is shared and learned via human networks.

Improving Information Flow

Network ties are distributed unevenly in organizations. People
that work together form networks together -- clusters emerge around
established work relationships. Engineers working on Project X form
a cluster, those working on Project Y form a cluster, and those
working on Project Z form a cluster. Everyone knows everyone else
within the local cluster, and yet only a few individuals have boundary
spanning ties to other clusters. Strong, frequent, ties are usually
found within clusters, while weaker, less frequent ties are found
between clusters.

Clusters of concentrated connections appear throughout an organization
and throughout industries. Some clusters have many ties outside
the group, while other clusters have only a few. Poor connections
between clusters result in very long path lengths throughout the
organization. In such a network it is easy to access those in your
cluster but not those in other clusters. This often results in distant
clusters not knowing what information and knowledge is available
elsewhere in the organization.

Often the knowledge you need is in clusters other than your own.
Networks have a horizon beyond which it is difficult to see what
is happening. Research by Noah Friedkin, at the University of California at Santa Barbara, has
shown that this horizon of observability is usually two steps in
a human network -- your direct contacts and their direct contacts.
Around three steps out, things are real fuzzy -- you do not have
a good idea of what is happening in that part of the network. Beyond
three steps, you are blind to what is happening in the rest of the
network -- except for obvious 'public' information known by everyone. So the popular idea of it being a 'small world' because
we are all separated by an average of 6 degrees is misleading. Six
degrees is actually a very large world -- one, two and three degrees
is a small world! It is usually those separated by two degrees where the 'small world' discoveries happen -- it is here where you discover the person next to you on the plane is related to a friend from your university days.

In a network of very long path lengths between clusters, your ability
to find the knowledge or information you need is very constrained. If
the knowledge that you seek is not within your network horizon[1
or 2 steps], then you assume it is not available in your organization
and you reinvent it, or pay for it on the outside. Exasperated with
this network horizon in his organization, a former CEO of HP once
lamented, "If HP only knew what HP knows".

The natural response in many organizations is to throw technology
at the problem. A very poor, yet quite common, solution is to mine
knowledge from employees, codify it, and store it in a knowledge
database. Many large consulting firms tried this approach in the 1990s with usually poor results. They found that people
were not always willing to make public their best knowledge and
that codifying tacit knowledge was like trying to nail jelly to
the wall.

Why not use the power of the network itself to create a solution?
Improve the organizational network and then use technology to help
people communicate across wide spans of the human network. At first
blush, improving an organization-wide network may seem an overwhelming
task. Where do we start? First, look at the networks and communities
of practice/interest/knowledge that have organized around a specific
topic, product, service or customer. Usually the whole organization
does not have to be included in the problem space. Second, map out
the network nodes and their connections (who goes to whom for expertise/knowledge/advice
on X?). From this network map, you can see the various clusters
and how they are connected. Figure 1 below is a network map of project
teams. A line connecting two teams indicates a two-way information
flow or exchange of knowledge.

Figure 1

This network of 17 project teams all work on subassemblies to a
larger product. The teams are composed of mostly engineers, technicians,
and project managers. All teams have less than ten members. Three
clusters are evident in the network of project teams.

Before we look at how to improve the overall connectivity of the
network, let's digress back to social capital. Which team has the
best social capital in this network? Which team can access all of
the knowledge and resources in the network quicker than the others?
(Hint: this network is drawn to reveal the answer.)

Common wisdom in networks is "the more connections, the better."
This is not always true. What is always true is "the better connections,
the better." Better connections are those that provide you
access to nodes that you currently do not have access to. Although
Team F and Team Q have many connections each and have excellent
local access (to the nodes near them), they have only fair access
to the rest of the network. Team O has the best social capital (aka
network benefits) in this network of project teams. Team O achieves
this with only three direct ties -- it is connected to others who
are well connected. Team O's indirect contacts bring access to information
and knowledge not available locally.

The average path length in this network is 3.45 with many paths
longer than the network horizon. Even in this small network there
are nodes[teams] that are nearly blind to what is happening in other parts
of the network.

In the summer of 1998, writing in the scientific journal Nature,
a stir of excitement was generated by two mathematicians from
Cornell, Steven Strogatz and Duncan Watts. While investigating small-world
networks (those with many clusters), they discovered that a few
randomly added crosscuts between unconnected clusters would improve[i.e.
lower] a network's characteristic path length significantly. The benefits were
not just local, but spread throughout the network and this improvement
could be achieved with just a few added ties in the network.
Very small adjustments could cause large positive changes -- a common dynamic in complex adaptive systems.

Looking back on our project team network in Figure 1, how can we
improve the connectivity with just one added link? Which two nodes
would you connect to bring everyone in the network closer together?

Although many combinations will increase the access of everyone
to everyone else, the greatest measurable effect is when we add
a crosscut between Team Q and Team F. The average path length drops
a whole step! The longest path in the network is reduced from 7 steps to 4 steps. In human networks,
the fewer steps in the network path, the quicker information arrives
with less distortion.

Figure 2

The connection between Teams Q and F may be the optimal connection
in network efficiency, but it may not be a practical connection.
Both of these teams already have many ties and may not have the
time and energy to support another one (remember what Hansen discovered about too many direct ties?). What is an alternative connection? If you cannot connect
the highly connected nodes, how about connecting their respective
network neighbors? Instead of connecting Q and F, how about connecting
D and Z? This connection will not reduce the path length as much,
but it is between nodes that are not overburdened with connections.

Leading Edge Management

One of the benefits of consulting with organizational network analysis
is having leading edge clients. Not only are they open to new methods
to improve their organizations, they usually end up teaching me
quite a bit. One such client is Vancho Cirovski, Vice President
of Human Resources at Cardinal Health. Vancho, an expert
soccer player and coach, first noticed an interesting phenomenon
on the playing field. Teams that were more integrated and communicated
well amongst themselves on the field, more often than not, beat
a collection of individually superior players who were not interacting
well on the field. I saw a similar phenomenon on my son's soccer team. They had good players, but were divided up into several cliques which did not get along with each other -- the team as a whole underperformed consistently. It is the chemistry of the mix that matters!

Vancho saw the same effect in project teams inside organizations.
He has summarized these concepts of managing connected organizations
using Einstein's famous formula:

E = MC2

M is the Mastery of each individual (human capital)

C are the Connections that join individuals
into a community (social capital)

C is the Communication that flows through those
Connections

E is the resulting Effectiveness of the team
or organization.

Vancho further stipulates that the two Cs, communication and connections, combine to form another C: Chemistry, which leads to team or organizational effectiveness.

A common reason for the failure of many mergers and acquisitions
is the failure to properly integrate the two combining organizations
and their cultures. Although a formal hierarchy combining the two
organizations may be in place, the right work relationships are
never formed and the merging organizations remain disconnected. Ralph Polumbo,
Vice President of Integration for Rubbermaid's 1998 acquisition
of its European competitor, Curver, wanted to make sure the two
organizations were combining effectively. He decided to map and measure
the melding of information flows, work relationships and knowledge
exchanges -- connections that help cultures combine. His vision
was one of a boundaryless organization with no fragmentation along
former constituencies. He wanted to track where integration was happening
and where it was not occurring. By examining his human and social
capital concurrently, he was able to visually monitor the successful
integration of both organizations. An organizational merger is illustrated here.

How can managers improve the connectivity within their organization?
Here are a few places to get started:

Look beyond the individual -- uncover their interconnections and multiple
group memberships.

Know the difference between tacit and explicit knowledge and
how it is shared and transferred.

Reward people for directly sharing their know-how, for including
others in their knowledge-sharing networks.

Help women and people of color connect to key knowledge flows
and communities in the organization. This may help eliminate the
glass ceiling.

Recruit new hires through the networks of current employees
-- they will be happier, adjust quicker, and stay longer.

When transferring employees keep in mind their connections.
Exchanging employees with a diverse network of ties can create
shortcuts between departments or teams and greatly improve the
overall information flow. Transferring employees from one department to another creates an overlap which enhances the transfer of information and influence between the two groups.

Ensure better coordination of behavior between departments or
projects by adding crosscuts to minimize the path length of their
information exchange networks. To reduce delays you want some
redundancy in the paths -- if one is blocked then alternative
communication paths are available.

For the HR department it is no longer sufficient to just 'hire the best'. You must hire
and wire! Start new networks, help employees and teams connect
--connect the unconnected!

What is connected knowledge? A competitive advantage! Your competition
may duplicate the nodes in your organization, but not the pattern
of connections that have emerged through sense-making, feedback
and learning within your business network. And if you get Vancho's
take on Einstein's formula correct, then connected knowledge is
pure energy!

In the 1992 U.S. presidential race, one simple phrase refocused
and re-ignited a jumbled campaign effort by Bill Clinton -- "It's
the economy, stupid". Adaptive businesses see the benefits in managing
connected organizations. We can adapt the old campaign slogan to
reflect the new business reality -- "It's the connections,
stupid!"